Essay on Case Study-Parmalat
843 WordsJun 19th, 20124 Pages
Case Study：Parmalat：Europe’s Enron
1. Review the facts in the case, especially the charges in the complaint, and evaluate the auditors’ compliance with GAAS. Do you think the auditor did all they could to detect the fraud? Evaluate whether auditors exercised due care and the level of professional skepticism to be expected in an audit the size of Parmalat.
After review the material, it is apparently the auditors did not do all they could to detect the fraud Parmalat and its management conducted. Parmalat eliminated billions of its debt through various techniques, such as fictitious loan participation agreement; mischaracterize its bank loan as intercompany debt, etc. Since the definitely huge amount of the loan which should attracted…show more content…
In Parmalat case, most activities and decisions could be categories into the three components.
(1), Motive – the need for committing fraud: After the aggressive expansion around the world in the 1990’s of last century, Parmalat began Italy’s eighth largest company, employed 39,000 people worldwide, also a world leader in dairy food business. Undoubtedly, huge amount of funds needed to operate the giant company. In my opinion, this might be the most important reason for Parmalat and its top management perpetrate the fraud.
(2), Opportunity – the situation that enables fraud to occur (often when internal controls are weak or nonexistent): Even Parmalat listed on the Milan stock exchange, the Tanzi family still held a majority and occupied the seats of CEO and chair of the board of the directors. The family governance system of the company and large amount of control wielded over the Parmalat’s operation. These kind overwhelming influences override whatever internal control. Therefore, Parmalat’s board never reported any irregularities and problems.
(3), Rationalization – the mindset of the fraudster that justifies them to commit fraud:
3. Based on the information in the case, classify the improper transactions engaged in by Parmalat into one of the seven financial shenanigans identified by Schilit in Chapter 7. Provide a brief explanation why you selected that group and how Parmalat’s accounting violates U.S.GAAP.
Essay on Parmalat Case Study
1261 WordsSep 26th, 20116 Pages
1. How was it possible for Parmalat managers to “cook the books” and hide it for so long?
Parmalat was able to cook the books mainly due to the fact that Italy has a low level of accounting transparency.
The story began in 1997, when Parmalat decided to become a "global player" and started a campaign of international acquisitions, especially in North and South America, financed through debt. Soon, Parmalat became the third largest cookie-maker in the United States. But such acquisitions, instead of bringing in profits, started, no later than 2001, to bring in red figures. Losing money on its productive activities, the company shifted more and more to the high-flying world of derivatives and other speculative enterprises.…show more content…
2. Investigate and discuss the role that international banks and auditors might have played in Parmalat’s collapse.
Clearly, international banks and auditors failed to do the due diligence, thereby indirectly contributing to the failure of Parmalat.
The largest bond placers have been Bank of America, Citicorp, and J.P. Morgan. These banks, like their European and Italian partners, rated Parmalat bonds as sound financial paper, when they knew, or should have known, that they were worth nothing. While Bank of America has participated as a partner in some of Parmalat's acquisitions, Citicorp is alleged to have built up the fraudulent accounting system.
What strikes one is not only the dimension of the scheme, but the arrogance of its authors. For instance, one of the offshore mail-box firms used to channel the liquidity coming from the bond sales was called Buconero, which means "black hole"! Appropriately, the first class-action suit in the United States on the Parmalat case, filed by the South Alaskan Miners' Pension Fund, is against Parmalat, its auditors, Bank of America, and Citicorp—and focusses on Buconero. "The Parmalat fraud has been mainly implemented in New York, with the active role of the Zini legal firm and of Citibank," said San Diego lawyer Darren Robbins, a partner in the firm Milberg Weiss Bershad Hynes & Lerach, which is leading the class-action